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Supreme Court Rules Against NFL

Court: NFL is 32 teams, not one entity

Supreme Court Rules Against NFL

WASHINGTON -- The Supreme Court rejected the National Football League's request for broad antitrust law protection Monday, saying that it must be considered 32 separate teams -- not one big business -- when selling branded items like jerseys and caps.

Clayton: Impact On All Of Sport

The Supreme Court decision to rule against the NFL and in favor of hat maker American Needle has a huge impact on not only the game of pro football, but sports in general.

Had the NFL won this case, it may have been able -- as one business entity -- to implement salaries for its players and coaches instead of having the current system of individuals bargaining for deals. The biggest impact of the ruling Monday is it could kick-start labor extension talks between the NFL Players Association and owners to prevent a lockout in 2011.

Talks have been going nowhere since the start of the year, but that's understandable. The American Needle case was a big hammer the NFL could have used if it had won. In football terms, this was a Hail Mary. Had the NFL won, it could have slowed the ever-growing labor costs affecting all sports.

The Court ruled 9-0 in favor of American Needle, which claimed the league violated antitrust laws in having a "one-entity" deal with Reebok to manufacture hats. The league had sought broader protections from antitrust law in the case.

The NFL's argument was that it was one entity instead of 32 teams. The Supreme Court ruled that strategy deprived the market of competition. What could have worked for hats could have worked against the players who help market those hats.

Antitrust lawsuits have been the benchmark of the NFLPA's ability to be a strong labor union. Baseball has broad antitrust exemptions, but the NFL has to go to court to fight for that type of leverage. Without a collective bargaining agreement, the NFL draft is considered illegal for antitrust reasons.

While this ruling doesn't mean a new labor deal could come soon, the decision on the American Needle case could help start the process moving, and fast. The NFL still has a lot of leverage in talks with the union. A positive decision on American Needle would have given the NFL a big hammer.

Now the hammer has been put away. Serious talks could begin before the end of the year.

-- John Clayton, ESPN.com

"Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned," said the retiring Justice John Paul Stevens, writing for a unanimous court.

The high court reversed a lower court ruling throwing out an antitrust suit brought against the league by one of its former hat makers, who was upset that it lost its contract for making official NFL hats to Reebok International Ltd.

American Needle, Inc. sued, claiming the league violated antitrust law because all 32 teams worked together to freeze it out of the NFL-licensed hatmaking business and gave Reebok an exclusive 10-year license.

The company lost and appealed to the Supreme Court but the NFL did as well, hoping to get broader protection from antitrust lawsuits.

American Needle's antitrust lawsuit now heads back to the lower court. The NFL said in a statement released after the ruling Monday that it was confident it would ultimately be victorious.

In its statement, the NFL noted that the Supreme Court's decision only pertained to merchandise and didn't affect "collective bargaining, which is governed by labor law."

"In today's decision, the Supreme Court recognized that 'special characteristics' of professional sports leagues, including the need for competitive balance, 'may well justify' business decisions that among independent competitors would otherwise be unlawful. The court noted that the NFL teams' shared interest in making the league successful and cooperating to produce NFL football provide 'a perfectly sensible justification for making a host of collective decisions,'" the NFL said.

Had the NFL won this case, it may have been able to -- as one business entity -- implement salaries for its players and its coaches instead of having the current system of individual players bargaining for deals. The biggest thing that came from this ruling on Monday is it could kick-start labor extension talks and prevent a lockout in 2011.

DeMaurice Smith, the NFLPA's executive director, welcomed the ruling.

"Today's Supreme Court ruling is not only a win for the players past, present and future, but a win for the fans. While the NFLPA and the players of the National Football League are pleased with the ruling, we remain focused on reaching a fair and equitable Collective Bargaining Agreement. We hope that today also marks a renewed effort by the NFL to bargain in good faith and avoid a lockout," Smith said in a statement Monday.

Major League Baseball is the only professional sports league with broad antitrust protection. The National Basketball Association, the National Hockey League, the NCAA, NASCAR, professional tennis and Major League Soccer supported the NFL in this case, hoping the high court would expand broad antitrust exemption to other sports.

But Stevens said NFL teams directly compete on many levels. Citing the two teams in this year's Super Bowl, the New Orleans Saints and the Indianapolis Colts, Stevens said that teams compete against each other "to attract fans, for gate receipts and for contracts with managerial and playing personnel."

"Directly relevant to this case, the teams compete in the market for intellectual property," Stevens said. "To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks."

American Needle was one of many companies that made NFL headgear until the league awarded an exclusive contract to Reebok. Lower courts threw out American Needle's lawsuit, holding that nothing in antitrust law prohibits NFL teams from cooperating on apparel licensing so the league can compete against other forms of entertainment.

“
Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that 'deprive the marketplace of independent centers of decisionmaking ... and therefore of actual or potential competition.'
”
-- Supreme Court Justice
John Paul Stevens

But the high court turned away that theory and sent American Needle's antitrust lawsuit back to the lower court.

"Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that 'deprive the marketplace of independent centers of decisionmaking ... and therefore of actual or potential competition,' " Stevens said.

Just because NFL teams have a single organization, the National Football League Properties, to jointly develop, license and market its logos does not mean it can escape antitrust scrutiny, Stevens said.

"If the fact that potential competitors shared in profits or losses from a venture meant that the venture was immune from" antitrust law, Stevens said, "then any cartel" could evade the antitrust law simply by creating a 'joint venture' to serve as the exclusive seller of their competing products."

The argument that NFL teams also need each other to play an NFL season also doesn't work, Stevens said. "A nut and a bolt can only operate together, but an agreement between nut and bolt manufacturers is still subject to" antitrust scrutiny, Stevens said.

The league argued that a court decision against it "would convert every league of separately owned clubs into a walking antitrust conspiracy" and bring legal challenges to any decisions that the teams make collectively like scheduling.

But Stevens disagreed.

"The fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions," he said.

In a unanimous opinion issued Monday, the U.S. Supreme Court rejected the NFL's claim that it is a single business entity and is immune from the nation's antitrust laws. The ruling came in American Needle Inc. v. NFL, a case that resulted from the league's decision in 2000 to award an exclusive contract for hats and caps featuring NFL logos to Reebok International Ltd. The NFL's arguments and the court's decision raise legal questions about the basic structures of the sports industry. Here are some of the questions and their answers:

Associate Justice John Paul Stevens, soon to retire, wrote the unanimous opinion in the Supreme Court's decision.
How important is this ruling from the high court?

For players and their unions, for coaches and for fans, the ruling is crucial. It's cause for high-fives and fist bumps in every player union office. The court's ruling preserves for the unions, for coaches and for fans the antitrust leverage that has produced enormous benefits for players in successful antitrust suits, has prevented the installation of coaches' salary scales and has maintained competitive pricing for tickets and team paraphernalia. If the high court had ruled the other way and given the NFL what it wanted, the ruling would have applied to all four major professional team sports and the NCAA and would have changed the economics of the sports industry.

Free agency, bonuses and increasing salaries gradually would have disappeared. Assistant coaches and coordinators would have faced leaguewide salary scales instead of the current system in which teams bid for their services. Fans buying tickets, subscribing to television packages, and purchasing paraphernalia would have faced escalating prices. Team owners would have enjoyed windfall profits.

The court's ruling eliminates all these possibilities and tells the sports industry that it is not immune from antitrust liabilities and, in all likelihood now, will never be immune.

This appears to be a big loss for the NFL. What were league officials thinking when they tried to convince the high court that sports leagues should be exempt from the rules that govern other American businesses?

In lower court rulings in this case, the NFL had achieved significant victories. In the federal district court in Chicago and in the Court of Appeals, the NFL was triumphant. It had achieved a total victory over American Needle Inc., a company that had made NFL-logo hats and caps until the league gave the monopoly contract to Reebok in 2000. Even though the NFL was the clear victor in the earlier rulings, its attorneys joined the American Needle attorneys in requesting a review by the nation's highest court. It was an unprecedented maneuver. The league wanted to defeat not only American Needle Inc., but all other possible antitrust litigants.

The American Needle Case

The Supreme Court has ruled against the NFL in its bid for antitrust immunity. (See the news story here). ESPN.com's Lester Munson has been following the case for nearly a year. Here is his coverage.

The most significant antitrust litigant in the history of the NFL has been the players union. Under the leadership of the late Gene Upshaw, the NFL Players Association used victories in antitrust cases to achieve free agency, huge bonuses, increased health and disability benefits, and escalating salaries for players. In an obvious effort to eliminate the players' best leverage as the union contract expires in March 2011, the NFL took a calculated risk and used the American Needle litigation to ask the high court for immunity.

The court voted 9-0 against the NFL. What made the NFL think that this maneuver could be successful?

The NFL has always enjoyed the finest of legal representation. Its principal law firm, Covington & Burling, has for decades performed litigation miracles for the league and has dodged numerous bullets. The NFL and its lawyers evaluated the current state of the high court, noticed its willingness to break with precedent and to enact new rules for ideological reasons, and decided to take the risk.

Was there a realistic chance the league could win? Yes. There was panic among union lawyers when they realized what the NFL was trying to do. In conversations with several union lawyers after the NFL's maneuver became apparent, there was not one who told me he was confident of a victory in the Supreme Court. Most observers agreed that it was highly possible the court's five conservatives could decide to give the NFL what it wanted. But instead of making a major change in the law, the court issued a narrow and highly analytical ruling that is limited to the dispute between American Needle and the league.

What is the future impact of this ruling? Many observers expect the owners to lock out the players in March 2011. Is a lockout now more or less likely?

The opinion from the Supreme Court makes a lockout less likely but clearly does not eliminate it. The NFL has clearly been preparing for a lockout. The league hired Robert Batterman, the New York lawyer who led NHL owners through a season-long lockout in 2004-05. The NFL has hired Troy Vincent, the former president of the NFL Players Association, in an effort to work directly with players. It has organized older players as an independent force. The coup de grace would have been antitrust immunity. With immunity, the owners could have locked out the players without any concern that an antitrust case could have ended the lockout and exposed the owners to triple damages. After Monday's ruling, the owners face the prospect of antitrust attacks on any lockout, with the prospect of injunctions and treble damages.

So the NFL lost, while players, coaches and fans won. Are there any other winners or losers?

American Needle now can take its case back to trial in Chicago.

Yes. The Obama Administration is a clear winner. The Supreme Court asked for the position of the federal government as part of the court's consideration of the issues raised by the NFL. In a response written by Solicitor General Elena Kagan, who has now been designated as President Obama's choice to replace the retiring Stevens on the high court, the administration argued that the NFL's plea for immunity should be rejected and that the case should be sent back to Chicago for a trial on the issues raised by American Needle. By a vote of 9-0, the high court did exactly what the administration suggested. Many of the arguments that Kagan asserted on the technical arcana of antitrust law became part of Stevens' opinion.

If, in Kagan's upcoming confirmation hearings before the U.S. Senate, there is a question about her work as U.S. Solicitor General, she can cite the American Needle case as a remarkable triumph. Very few lawyers can claim a 9-0 victory in the nation's highest court, much less a unanimous opinion based in large measure on her arguments.

What happens next in this case?

The case will be returned to Chicago for pretrial discovery (exchange of documents, financial data, and depositions) and for a jury trial. The pretrial procedures may result in a rare look at the inner world of NFL and team finances, but the NFL's attorneys will attempt to keep all inside information away from public view. A jury will decide the case under a legal doctrine known as the Rule of Reason. The question will be whether the NFL's grant of a restrictive and exclusive contract to Reebok was somehow a reasonable exercise of the NFL's monopoly powers over manufacture and sale of the league's hats and caps. If the jurors decide the restrictive contract was an unreasonable exercise of the league's power, the league will be forced to pay American Needle triple the amount of money it lost when it lost the contract.

What does Monday's ruling mean for the other three leagues and their contracts for hats, caps and other paraphernalia with team logos?

It means that the other leagues must be very careful as they make these deals. Many of these contracts are leaguewide arrangements that could run afoul of the ruling in the American Needle case. If a manufacturing company feels it has been unfairly barred from a fraction of a paraphernalia contract, it now can file its antitrust lawsuit and put the league at the wrong end of expensive and lengthy litigation. But every lawyer in the sports industry has been watching this case and is now aware of the decision and its implications. Any profits that might result from an exclusive contract, the lawyers now know, must be balanced against the likelihood of an antitrust attack.

Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.